scheme

[Connemmara]

I paid into a scheme from 1988 to 2004 when I subsequently was medically retired. And was to receive it when I was 60. However upon acting up and pursuing the Northern Ireland Civil Service Pension I was refunded yesterday but was told I have to pay 40% tax of this money. Can anybody tell me why this is so high and also surely I paid tax when I was working all those years.


Also is there anyway I could pay them bit by bit sums rather than the whole lot at once. Thanks for any replies.

[bednobs]

are you talking about a pension? When you say a "scheme" was it your employers scheme?
If it was a pension, i presume if you have been medically retired you are now getting your pension?
Sorry you don't really give enough details
i suppose a guess would be if you paid in for nearly 20 years and have now been refunded that money it has taken you over the higher tax band for income this year. You don't pay tax on pension payments when you make them so you have probably never paid tax on this money

[factor-fiction]

Please can you have another go at explaining this.
What has been refunded.?
If your contributions have been refunded you will have to pay tax on them as the contributions would have been paid without tax deducted.
I don't understand though why contributions would have been refunded.
Or do you mean you have now finally been awarded the pension you thought you were entitled to. If so, pension benfits are taxable. You didn't pay tax at the time on the money used to pay those contributions

[EcclesCake]

Are you referring to the Civil Service widows and orphans scheme?

If so the contribution is made before tax is deducted. I'm not sure I understand why you want to repay tax in instalments as it is usually already deducted and if this is not the as you are in possession of a lump sum why worry?

[Connemmara]

Eccles Cakes - you are on the ball - yes it is widows and orphans altho it was eventually called widows and dependants.

Yes I received a letter yesterday telling me they were giving me a refund but I must pay 40% tax to HMRC. I have only been told they will send cheque next week and I must inform tax people that I have to give them 40% of tax and they mentioned they will contact tax people that I owe them this money - that is why I am asking whether I could pay them back in instalments. enclosed is an excerpt from my letter


"your contributions are refunded with interest, and the payment of a single, non-returnable premium covering the cost to the pension scheme of providing post-retirement survivor's pension, in the event of your marrying (I am not married) or entering into a civil partnership and dying before your spouse of civil partner. The premium is 30% of the value of the contingent post-retirement survivor's pension.

Under the tax legislation introduced by the Government with effect from 6 April 2006, lump sums such as this, which are not paid as part of a pension, are generally considered 'unauthorised' and would be liable to a tax charge. Because this is "unauthorised' payment under the new tax legislation you will be liable to pay tax at 40% of the amount paid to you. We will pay you your refund without tax deducted but it is then your responsibility to tell Revenue that you have received an unauthorised payment from the scheme. Please note we will tell Revenue that we have made this payment to you and they will follow this up with you in due course.

Sorry for going on at length with the excerpt but hope if you can help can I pay in instalments or why it is so high. Thanks Eccles Cakes and of course anybody else who helped here.

[EcclesCake]

The amount of tax due is going to be a reflection of the size of the refund. If it takes you into the 40% tax bracket then there is nothing you can do about it.

I'm not knowledgeable enough to advise on the repayment aspect but think it us unlikely that HMRC will accept instalments as you have the money to give them in one lump sum.

[dzug2]

Depending on the sum HMRC MAY be willing to collect it via PAYE.

When you paid those contributions you got tax relief on them - so you have to pay it now.

IIUI correctly you won't be paying 40% tax on the whole of what you get. It will be 20% on your refunded contributions and interest, and 40% on the lump sum in lieu of future survivor benefits. That lump sum is not an 'authorised' payment and hence is subject to higher tax.

[bednobs]

i think ec has it there. I don't think you will have any luck paying the tax in installments though as you will have the money right there to pay them

[albaqwerty]

I think it's obscene when people pay into savings from wages already taxed, that their savings are taxed again, but that's a different discussion.

Ouch Conne, 40% yuck.

[buildersmate]

"I think it's obscene when people pay into savings from wages already taxed, that their savings are taxed again".
You misunderstand - the wages that went into the pension WEREN'T taxed - and that is why tax is due on them now if the OP wants the money back out again.
The idea of these payments is to provide a pension, which is why they are allowed to be tax-free when paid into a pension pot.

[maclarencat]

This is one of my hobby horses. Everyone tells you to pay into a pension pot and avoid paying tax. What they fail ro mention is that when you claim the pension it is then taxable meaning that when you were working and could have afforded the tax you were exempt and then when you retire any your income is greatly reduced you are hit with the tax. I firmly believe tax should be paid on contributions. The only people who benefir from this are the people who when working are paying higher rate tax and when retired are only paying the lower rate tax. Another case of the rich benefitting. (Moan over) I am sure this person would have been happier paying the lower rate than now having to pay the higher rate

[buildersmate]

But he didn't HAVE to cash it in, did he.

[Connemmara]

fao of buildersmate

I did have to cash it in - it should have been given automatically to me when I turned 60 which was last November - I had to chase it up and then lift it. I know there are 1,000s of pounds lying there because older people (not remembering they had paid into it (when they were working) and not being reminded of it) have left it lying - I remembered and even my friend who did not know anything about it - enquired about it nonchalantly (after I told her about it) and got £2,000 back - she could not believe it. It is a bl dy scam.

[factor-fiction]

But connemmara, pensions income is taxable, just like any other income is taxable. With a pension you get tax relief on the way in (your contributions from income) but pay tax on the way out (on the pension moneys received).

[Connemmara]

I understand but why 40% why couldn't have been 20% or 25% - dont understand the enormity of 40% and how they (tax people) come to that conclusion

[woofgang]

because it in investment ie un earned income.

[factor-fiction]

Don't think so woofgang- the 40% must be his/her marginal rate.

If it takes your income for this tax year above the 40% tax threshold, connemmara, you will pay some tax at 40%.
Depending on your income at teh time you may have had 40% relief on contributions.

[Winnysmum]

Connemara I am in a similar position !!! Who did you write to to get the ball Rolling ?
Also having read all the comments I think what everyone failed to grasp is this isn't an enormous amount of money and is highly unlikely to increase the overall income into the higher tax payers bracket, so yes I get you ! Happy to pay 20%. But why 40%. I had early retirement sep 2005 and therefore did not qualify for the WPS refund until I reach 60. friend of mine left the service late 2007 aged50,and had all the contributions returned no tax !! How can THAT be fair !!!!!!